August, 2017, Crude Oil Production Data Has Been Posted -- October 12, 2017

Director's Cut: August, 2017, data posted; significant increase in production, month-over-month.

Active rigs:

$50.58→	10/12/2017	10/12/2016	10/12/2015	10/12/2014	10/12/2013
Active Rigs	59	33	68	190	184

RBN Energy: rejection economics and capacity constraints will swing ethane prices.

As new ethane-only steam crackers come online and ethane exports accelerate, ethane demand is ramping up from 1.3 MMb/d today to somewhere between 2.1 and 2.3 MMb/d in 2022. The good news is that a lot of new ethane supply is becoming available — from high-Btu Permian associated gas, more gas from other oil-focused plays, and of course rapidly growing Marcellus/Utica production.

Depending on what happens to oil and gas prices, somewhere between 2.5 and 3.2 MMb/d of “potential” ethane could be available by 2022 to meet that demand. So, no problem, right? Not so fast. Some of this potential ethane will be very expensive to get to market, and some won’t be able to get to market at all due to pipeline capacity constraints. How these market dynamics play out raises the possibility of wide swings in ethane prices.  Today we will explore how this may play out.

We have talked a lot about ethane and its unique market dynamics in the RBN blogosphere — it’s the only energy commodity that can morph from being sold as natural gas to being sold to petrochemical plants as a liquid feedstock.

This is Part 3 of a series in which we look forward based on RBN’s most recent forecasts of ethane supply and demand.

In Part 1 we discussed one of the most important factors that will indicate how the current ethane market transformation will take place — namely, the ratio of Mont Belvieu ethane prices to the Henry Hub natural gas price on a per-Btu basis. This ratio is an indicator of the relative value of ethane as a petrochemical feedstock versus ethane sold as natural gas (ethane rejection). The higher the ratio of ethane to natural gas prices/Btu, the greater the volume of ethane that is recovered as a liquid feedstock for the petrochemical industry. That ratio is up from 1:1 last year to 1.4:1 this year, and that shift has been a major driver for increasing ethane production, which is up about 90 Mb/d (2017 year-to-date versus 2016 average), or 70% of the growth in total NGL production growth of about 130 Mb/d. In other words, ethane has been responsible for most of the increase in NGL production over the past year, with most of the volume coming from ethane that previously was being rejected.

Then in Part 2 we looked at what is happening on the demand side of the ethane equation, including the timing of new steam-cracker startups, how much additional ethane they will use, the pace of ethane export growth, and the trends in the cents-per-pound margin for producing ethylene from ethane.